Minimum Compensation Rule in Total Taking Cases: The Supreme Court Issues a Ruling in County of Dakota V. Cameron

Lindquist Gets Real: Real Estate Tips from Lindquist & Vennum

02.01.14

We have previously written (see here and here) about the Minnesota “minimum compensation” statute, codified in Minn. Stat. 117.187, which states in part:

When an owner must relocate, the amount of damages payable, at a minimum, must be sufficient for an owner to purchase a comparable property in the community and not less than the condemning authority’s payment or deposit ... under section 117.042, to the extent that the damages will not be duplicated in the compensation otherwise awarded to the owner of the property.

The Minnesota Supreme Court (SCOMN) has issued an opinion interpreting portions of the minimum compensation statute: The County of Dakota vs. George W. Cameron, IV. The decision was eagerly anticipated and was hoped to clarify some questions about the minimum compensation statute. Unfortunately, the opinion fails to offer much clarity, and the bit of guidance it does offer leaves some of the condemnation bar wondering whether the decision is fair to property owners whose land has been taken.

Cameron arose from a total taking of a commercial property in Dakota County improved with an older building containing a 4,444 square foot ground floor and a basement of approximately 2,000 square feet. Mr. Cameron used the property to operate a liquor store. The basement served as convenient low-cost storage for the store, increasing the per-square-foot profitability of the property. This unique feature, along with the property’s location, enabled Mr. Cameron to maintain profitability utilizing a high volume, low margin business. In other words, Mr. Cameron was a successful businessman who found a profitable niche in a competitive sector of the economy.

Following the taking, Cameron argued that the literal language of the minimum compensation statute -- “the amount of damages payable, at a minimum, must be sufficient for an owner to purchase a comparable property in the community” -- meant that, at the end of the case, he must receive enough money to actually purchase, within the vicinity of his taken business, a property that would enable him to carry on his liquor business in the same manner that he enjoyed prior to the taking.

The District Court disagreed. Instead, it fashioned an award based on the per-square-foot appraised value of a liquor store that was beyond Mr. Cameron’s “3-mile trade area” but was in the same city (Inver Grove Heights) and had recently sold (and thus was no longer for sale), multiplied by the square footage of Mr. Cameron’s property, and awarded this amount to Mr. Cameron. Nobody disputes that, after this was completed, Mr. Cameron was not able to purchase a comparable property in his community. In other words, Mr. Cameron is now out of business. What was previously a lifelong income generator is now a finite fund of money in a bank account.

There are some in the condemnation bar that believed the intent of the statute was to keep small business owners in business. Similarly, many in the condemnation bar believed that, under the statute, residential owners should continue to be able to live as they had prior to any public taking. SCOMN made it clear that this is not how they interpret the minimum compensation statute.

As noted, the relevant portion of the statute states: “at a minimum, must be sufficient for an owner to purchase a comparable property in the community”. Cameron was arguing that a proper damages award must address both elements of this portion of the statute, that is (i) the calculation of damages should be based on a property that is comparable, and (ii) since the damages amount must be sufficient to purchase this comparable property, the calculation must be based on a property in the community that is actually available for purchase.

As to the definition of “comparable”, SCOMN stated that the phrase “requires only enough characteristics and qualities to permit the valuation of one property by comparison to another property.”

As to “sufficient for an owner to purchase”, the Court dismissed outright Cameron’s argument that the comparable property being used for this determination must also actually be available for purchase, in the following words:

To be sure, the word “purchase” appears before the phrase “a comparable property” in the minimum-compensation statute. Minn. Stat. § 117.187. However, the remedy afforded by the minimum-compensation statute is not a replacement property. Rather, the minimum-compensation statute provides for monetary compensation, the amount of which is equivalent to the sum necessary to purchase a comparable property. Cameron’s alternative interpretation -- which would require a “comparable property” to be available for purchase at the time of the taking -- would effectively convert the minimum-compensation statute from a compensatory regime into one granting a warranty to displaced property owners guaranteeing a particular result. Such an interpretation is inconsistent with the plain language of the minimum-compensation statute and other provisions in Chapter 117. See, e.g., Minn. Stat. § 117.186, subd. 2 (2012) (requiring a condemning authority to provide loss-of-going-concern damages for a business when no comparable property exists).

Indeed, the court seemed to suggest that it was open to consider whether Mr. Cameron had been overly-compensated. In a footnote, the Court stated:

Despite finding that the Robert Trail property is “comparable” to the condemned property, the district court’s award of damages did not merely provide an amount “sufficient for [Cameron] to purchase” the Robert Trail property. Rather, the court adjusted the award upward, “in the interests of equity and justice,” to account for the fact that the buildings on the two properties were not the same size. The effect of the court’s award was to compensate Cameron in an amount sufficient for him to purchase a hypothetical property approximately twice the size of the Robert Trail property. We note that the County has not challenged the $997,055.84 damages award, and we therefore express no opinion about whether the minimum-compensation statute permits an upward or downward adjustment from the value of the comparable property.

The ultimate meaning of Cameron is that SCOMN views the minimum compensation statute as merely an alternative fair market value formulation, with the distinction being that instead of measuring damages by the fair market value of the condemnee’s property, the award measures the fair market value of a comparable property in the community. In the view of SCOMN, the statutory phrase “sufficient for an owner to purchase”does not mean what it literally states. Many in the condemnation bar feel that this opinion effectively re-wrote the statute into something along the lines of the following: “at a minimum, must be sufficient for an owner to purchase a at least equal to the appraised value of a comparable property in the community”.

The Court also attempted to tackle the meaning of “community” as used in the minimum compensation statute. Since the statute applies to both commercial and residential properties, and since it governs regardless whether the property is in a rural area, a town, or a city, the Court concluded that it could not define “community” for all purposes, and thus a “case by case” methodology was appropriate.

Accordingly, we hold that the term “community” in the minimum-compensation statute means an identifiable locality that has a socially or governmentally recognized identity, or a group of such localities. Depending on the facts of a particular case, the relevant “community” could be a neighborhood, district, town, village, city, county, region, or other similar locality.

Other than clarifying that “community” means a geographic place, this dicta offers little guidance to lower courts or commissioner panels as to how “community” should be determined. It will certainly be an issue that will require further clarification in the future.

The Cameron decision leaves the condemnation bar wondering how to handle minimum compensation cases on a going-forward basis. There are currently quite a few pending residential total takings cases associated with the CapX2020 project where the application of the minimum compensation statute is at issue. This was quite evident in the Cameron case as there were a half dozen amicus curiae briefs filed in the case. We will of course continue to inform you as to developments in this area as they unfold.

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